Interconnection and Peering among Internet Service Providers

A Historical Perspective An Interisle White Paper
Prepared by: Interisle Consulting Group, LLC 39 S Russell Street Boston, MA 02114 Lyman Chapin +1 617 686 2527 Chris Owens +1 617 413 3734


ISP Peering and Interconnection

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About this Report
Studies of Internet Service Provider (ISP) interconnection arrangements have been performed from many different perspectives, including the technical architecture of exchange points, the business and economic models that underlie peering and transit agreements, and the interaction between market-driven interconnection arrangements and public policy (at both the national and international levels). These studies have been extensively reported and analyzed (see Sources and References). This report is intended to provide an historical context for, and concise summary of, the evolution of ISP interconnection—how it originated, how it developed, and how it is practiced today—without exhaustively reiterating information that is available from other sources. The goal of this report is to describe the way in which the self-organized and selfregulating structures that govern today’s global Internet—including the arrangements that enable ISPs to connect their networks to each other—have evolved naturally, over a period of roughly 35 years, according to principles that are deeply embedded in the Internet architecture. These structures are selforganized and self-regulating not because the Internet is an anachronistic “untamed and lawless wild west” environment, but because years of experience have shown that self-management is the most effective and efficient way to preserve and extend the uniquely valuable properties of the Internet. Following an introduction to ISP interconnection in section 1, section 2 of this report describes the way in which today’s model of ISP interconnection has evolved over the past 35 years in parallel with the evolution of the Internet architecture. Section 3 describes the economics and management structures that have emerged from that process to govern today’s Internet. Section 4 identifies new challenges that have emerged since the turn of the century to the traditional arguments for and against the regulation of ISP interconnection. Section 5 summarizes the conclusions of the report. Section 6 contains a list of sources and references.

Copyright © 2005 Interisle Consulting Group, LLC. All Rights Reserved

and was separately incorporated in 2000 as Genuity. Before co-founding Interisle Consulting Group. which became one of the first commercial Internet Service Providers (BBN Planet) in 1993. . BBN operated the NSFnet regional network NEARnet. and the U.ISP Peering and Interconnection Page 2 About the Author Lyman Chapin has actively contributed to the development and evolution of the technologies and self-governance structures of what is now the Internet since 1977. and is the co-author of Open Systems Networking—TCP/IP and OSI. the Special Interest Group on Data Communication of the Association for Computing Machinery (ACM SIGCOMM). and international standards committees responsible for network and transport layer architecture. LLC. Chapin has also served as a Director of the Internet Corporation for Assigned Names and Numbers (ICANN). He is a Fellow of the Institute of Electrical and Electronics Engineers (IEEE). Beginning in 1989. Chapin has served as the chairman of the Internet Architecture Board (IAB). and policy framework that support today’s globally pervasive Internet. and U.S.interisle. He was a principal architect of the Open Systems Interconnection (OSI) reference model and protocols. Mr. All Rights Reserved www. Chapin was Chief Scientist at BBN Technologies. Copyright © 2005 Interisle Consulting Group. representative to the computer communications technical committee of the International Federation for Information Processing (IFIP TC6). which (as Bolt. and during almost three decades of international technical and diplomatic leadership has played a key role in the development of the network routing and interconnection architecture. service. and protocol standards. Beranek and Newman) developed the hardware and software for the first ARPAnet nodes installed in 1969.S. Mr. acquired two other regional networks (BARRnet and SURAnet). protocols. representative to the networking panel of the NATO Science Committee. Mr.S. co-founder and trustee of the Internet Society (ISOC). standards area director for the Internet Engineering Steering Group (IESG).

End users see the seamless. The unregulated marketdriven model on which today’s global interconnection arrangements are based has developed over the past three decades in parallel with the development of the Internet itself. for reasons that are intrinsic to the architecture of the Internet and how it has evolved. Internet interconnection is fundamentally different from interconnection in the traditional.interisle.S. despite the fact that no single network operator could possibly provide Internet access in every part of the world. and governmental entities. Interconnection is the glue that holds the Internet together. global. LLC. circuit-switched telephony world. The Digital Handshake: Connecting Internet Backbones (see Sources and References). institutional. around the block or around the world. and studies by a wide variety of public and private organizations2 have repeatedly concluded that it represents the most effective and efficient way to provide ubiquitous public Internet connectivity without being either anti-competitive or inequitable. and the number and variety of 1 In The Evolution of the U. ISP Interconnection1 allows traffic originating at a source connected to one ISP’s network to reach a destination connected to another ISP’s network. the nature of Internet interconnection agreements. Internet Peering Ecosystem (see Sources and References). the range of choices that are available to participants. Interconnection enables the Internet as a whole to be ubiquitously fullyconnected. All Rights Reserved www.” 2 An excellent summary of the case that these studies collectively make for the unnecessity of ISP interconnection regulation is contained in FCC Office of Plans and Policy (now Office of Strategic Planning and Policy Analysis) Working Paper 32. Copyright © 2005 Interisle Consulting Group. Bill Norton coins the roughly equivalent term Internet Peering Ecosystem: “a community of loosely affiliated network operators that interact and interconnect their networks in various business relationships. joined to each other by interconnection arrangements.ISP Peering and Interconnection Page 3 1 Introduction Internet Service Providers (ISPs) connect their networks to each other in order to exchange traffic between their customers and the customers of other ISPs. the economics of interconnection. ubiquitous communication medium known as the Internet. owned and operated by many different corporate. As a result. behind the scenes lie many individual .

All Rights Reserved . Thus. at which two or more ISPs make technical and administrative arrangements to exchange traffic. which enables the owners and operators of different networks to collaborate as business entities in the provision of seamless end-to-end Internet connectivity to all of their individual customers. In the 1950s and 1960s. who took 3 The standard Internet Protocol is the “IP” in the familiar acronym “TCP/IP. LLC. terminals. which enables networks based on different telecommunication technologies and protocols to exchange data. The Information Processing Techniques Office (IPTO) of the Advanced Research Projects Agency (ARPA) of the U. Today internetworking. 2. is the common operating mode throughout the Internet. ISP interconnection is not an intrinsic technical feature of the Copyright © 2005 Interisle Consulting Group. before LANs and PCs.ISP Peering and Interconnection Page 4 participants in the market are different from their counterparts in the telephony world. it is a management feature necessitated by the fact that the ownership and administration of the physical components of the Internet infrastructure are distributed among many different commercial. and interconnection. and printers) to resolutely self-contained mainframe computers. Early efforts to connect computers to each other led to “networks” based on a variety of different proprietary communications technology and protocols. using the standard Internet Protocol3.S. “computer communication” meant connecting I/O and storage peripherals (such as card readers. Department of Defense funded several projects to build homogeneous networks before Bob Taylor.interisle. interconnection takes place at specific public and private exchange points. noncommercial. there is an important distinction between internetworking.” www. and governmental organizations.1 Networking Neither internetworking nor interconnection were features of the Internet’s most distant precursors. 2 The Origins of Interconnection As we observe it today.

2) The concept of best-effort service. When there were just a few of these homogeneous networks. and Binder. UK.ISP Peering and Interconnection Page 5 over as IPTO head in 1966. LLC. 4 In the early to . culminating in the July 1968 ARPA request for proposals for the interconnection of four ARPA research sites into what would be called the ARPAnet. through 1970)5. in Leonard Kleinrock’s work at UCLA in Los Angeles. 2. but as the number of networks grew. (c) messages broken into equal-size packets. Kuo. which originated in the multi-access channels of ALOHAnet at the University of Hawaii (by Abramson. CA. Copyright © 2005 Interisle Consulting Group.interisle. and in Donald Davies’s work at the National Physical Laboratory in Teddington. All Rights Reserved www. (d) variable routing of packets depending on the availability of links and nodes. All three concluded that the strongest communication system would be a distributed network of computers with (a) redundant links. it was possible to exchange information between them by building a translator. (b) no central control. and the idea of contention for channels was widely familiar in the radio context. the n-squared scaling inefficiency of pair-wise translation led to the idea of “internetworking”—creating a network of networks. CA. recruited Larry Roberts to design a “distributed communications network” which laid the foundation for the ARPAnet. it was Bob Metcalfe’s brilliant leap from ALOHA to Ethernet (at PARC in 1973) that brought the concept of stochastic (non-deterministic) channel access into the networking mainstream.2 Internetworking It is remarkable to realize that the very earliest thinking4 about what a “network of networks”—an “internet”—should be embraced the three key concepts that underlie the architecture of today’s global Internet: 1) The concept of packet switching. 5 ALOHAnet was a radio network. which originated in at least three distinct places during 1961-1965: in Paul Baran’s work at the RAND corporation in Santa Monica. and (e) automatic reconfiguration of routing tables after the loss of a link or node.

PSS. in 1969.ISP Peering and Interconnection Page 6 3) The concept of application independence—that the network should be adaptable to any purpose. and the IMPs communicated with each other over 56Kb/sec. whether foreseen or unforeseen. rather than tailored specifically for a single application (as the public switched telephone network had been purpose-built for the single application of analog voice communication). and the X.interisle. were being developed at the same time7. Datapac. All Rights Reserved www. 2.S. LLC. and has carried through to the governance structures that oversee the Internet today—particularly the Internet Engineering Task Force (IETF). the ARPAnet began using IP in 1977. Other packet networks.S. using an ARPAnet-specific “host-to-host protocol” that was referred to as the Network Control Program (NCP). and operating the network was established at the very first NWG meeting.3 Interconnection The clearly evident usefulness of the ARPAnet to the U.” after the serial number of the BBN report that described it. later Cyclades (Louis Pouzin). Initially the Packet Radio Network (Bob Kahn) and Packet Satellite Network (Larry Roberts). the ARPAnet was not an “internet”—each of its four computer hosts was connected to an Interface Message Processor (IMP) by a proprietary serial link and .25-based networks that became Telenet. From the beginning the ARPAnet was managed by an informal and mostly selfselected group of engineers and managers who began meeting as the Network Working Group (NWG) in the summer of 1968. installing. Copyright © 2005 Interisle Consulting Group. The tradition of self-management by the people designing. At the outset. based on other protocols. Government agencies to 6 7 Dubbed “1822. and Transpac. lines leased from the telephone company. Defense Department contractors who were permitted to use it led other U. The first papers describing “packet network interconnection” were published by Vint Cerf and Bob Kahn in 1973.

and initially they did not. AT&T’s wide dissemination of the Unix operating system encouraged the creation of USENET. NASA Space Physicists followed with SPAN. the Federal Networking Council (for administrative matters) and the Federal Engineering Planning Group (for technical matters). DoE. 8 The Copyright © 2005 Interisle Consulting Group. LLC. The prevalence of highly restrictive AUPs provided little incentive for the networks to interconnect. which linked academic mainframe computers.. ARPA. All Rights Reserved .interisle. These interconnection points were managed by two informal groups of engineers and managers. disgruntled computer scientists9 who could not connect to one of the government-controlled networks established CSNET for the (academic and industrial) computer science community. The interconnection regime was designed primarily to isolate the regions within the emerging technologically uniform IP “internet” that were subject to different acceptable use policies. and Larry Landweber. 2. With the exception of BITNET and USENET.g. and NSF: the Federal Internet Exchanges at the University of Maryland (FIX-East) and NASA’s Ames Research Center in Mountain View. CA (FIX-West).ISP Peering and Interconnection Page 7 develop similar networks8. David Farber.S.1 Federal Internet Exchanges The practical awkwardness of operating multiple non-communicating networks eventually led to the establishment of two exchange points for federally-funded networks operated by NASA. to conduct research funded by a particular government agency). Eventually. and in 1981 Ira Fuchs and Greydon Freeman developed BITNET. these early networks were restricted to closed communities defined by an “acceptable use policy” (AUP) that specified the uses to which the networks could legitimately be put (e. based on the Unix UUCP communication protocols. Department of Energy (DoE) built MFENet for its researchers in Magnetic Fusion Energy.3. www. DoE's High Energy Physicists responded by building HEPNet. 9 Led by Rick Adrion.

All Rights Reserved www.25 networks could not be connected to the ARPAnet (or to the other federal networks that were interconnected at the FIXes) because of the government policy limiting ARPAnet to government agencies and their contractors. The purpose of CSNET was to link all of the computer science departments and industry labs engaged in computing research. contractual. and Peter Denning (Purdue University). A landmark agreement between NSF and ARPA allowed NSF grantees and affiliated industry research labs access to ARPAnet. David Farber (University of Delaware). It provided TCP/IP interfaces with USENET. and commercial X. 10 by Larry Landweber (University of Wisconsin). and established nameserver databases to enable any computing researcher to locate any other. In modern terms. because no mechanism existed to reconcile the different Acceptable Use Policies of the two networks. Copyright © 2005 Interisle Consulting Group. and those who could not (connecting instead to CSNet). The development of CSNet highlighted the disconnect between the “haves” and the “have nots” in the computing research community—between those who could find a government agency or contractor to sponsor their connection to the .3. which was created in 198110 under a grant from the National Science Foundation . as long as no commercial traffic flowed through ARPAnet.interisle. financial. BITNET. BITNET. This agreement was the turning point at which the evolution of commercial network interconnection began.25 networks. and a host of other issues. and the X. the bureaucratic complexity of which daunted even the most fervent advocates of interconnection—until the CSNet managers came up with the idea that we now call “peering. LLC.2 CSNet and NSFnet The USENET. This disconnect persisted as both sides assumed that any agreement to exchange traffic would necessarily involve the settlement of administrative. we would say that the customers of one ISP (ARPAnet) could not communicate with the customers of another ISP (CSNet).” or interconnection without explicit accounting or settlement. The turning point that eventually brought them all together was the CSNET project. Anthony Hearn (Rand Corporation).ISP Peering and Interconnection Page 8 2.

and in 1996. LLC. or MAEs) became increasingly congested. privately owned and operated Network Access Points (NAPs). Hans-Werner Braun.>> As the original NAPs (also referred to as Metropolitan Area Exchanges. and Steve Copyright © 2005 Interisle Consulting Group.interisle. using published pricing and established technical operating specifications.3. a NAP operator was required to provide and operate an interconnection facility on a nondiscriminatory basis. the NSFnet had become the backbone of the modern Internet. Under the terms established by the NFS. a high-speed backbone connecting its supercomputing research centers. All Rights Reserved . NSF handed over its management to commercial Internet Service Providers (ISPs). it established four geographically distributed. Bob Aiken. and MFS.4 Commercial Internet Exchange Points As the number and diversity of NAPs increased. which extended the commercial Internet exchange model yet further. Ameritech. By 1990. as the National Science Foundation began the transition to private ownership and management of the NSFnet infrastructure. Pacific Bell. the potential complexity of hundreds or thousands of ad-hoc bilateral arrangements pointed to the need for 11 By Peter Ford. www.ISP Peering and Interconnection Page 9 NSF went on to sponsor NSFnet. 2. <<CIX in San Diego was the first to engineer the interconnection at the IP layer.3. NSF also commissioned the development11 of a deliberate architecture of backbones and regional networks that introduced the idea of hierarchy into the Internet topology.where any interested party could co-locate equipment and connect its network to the NFSnet backbone or to other networks. using routers. operated by Sprint. These NAPs were the first commercial Internet exchange points.3 Network Access Points In 1993. many network providers began creating their own private NAPs. 2.

All Rights Reserved www.g. The economic incentives and tradeoffs that are so richly diverse in today’s Internet (see section 3.k.3. operational support of routing equipment. Internet Service Providers. operating in every business from high-capacity backbone traffic down to dial-up lines. This interconnection hierarchy did not. a. led many ISPs to explore direct interconnection of their networks with those of other ISPs. in turn. and operating philosophies. End users connected to ISPs by placing calls over the public telephone network to modem banks operated by the ISPs. and backbone providers were the wholesalers of the emerging commercial Internet. Others specialized in providing one form or another of connectivity to one or more specific markets. NAPs. or via leased circuits of higher capacity. serving the same or different markets. to interconnect in ways appropriate to each. interconnection.a. correspond to a strict hierarchy of ISPs and backbone providers as business entities. connected to regional or backbone networks at NAPs or exchange points. ”exchange points. Any ISP could connect to one of the public Internet exchange points. or ISPs. Some providers were vertically integrated. were the retailers. LLC.ISP Peering and Interconnection Page 10 an overarching. traffic routing based on sophisticated criteria. These exchanges provided a framework that allowed multiple providers of different . scopes. traffic metering. The Copyright © 2005 Interisle Consulting Group. particularly for destinations that would be several “hops” away using a public exchange.5 Internet Service Providers If exchange points. It was at this juncture that there began to emerge a large number of privately operated NAPs.interisle. 2. ISPs served end users by providing connectivity between them and the rest of the Internet. neutral policy framework within which providers could implement mutually beneficial cost-sharing interconnection agreements.” which provided a uniform set of technical and administrative services (e. however. but the opportunity to achieve better performance. billing. ISPs.2) began to develop as soon as commercial ISPs recognized that their interconnection arrangements could be a source of competitive advantage. and clearing and settlement of charges between parties).

and more rapidly. Because North American Internet users were overwhelmingly the sources. All Rights Reserved www. for example. which meant that even where a link existed between.interisle. rather than the consumers. for . in North America than in other parts of the world13. Germany and France. the cost of connecting through an exchange point on the east coast of the U. Edward J. of 12 The topology of Internet interconnection has emerged over the past decade as an important factor in studies of Internet resilience and survivability. The fear of Internet “balkanization” as a result of large ISPs refusing to interconnect with smaller ISPs is. 13 With the notable exception of the UK. the customers of every ISP could communicate with the customers of every other ISP. and the variety of different ways in which the rapidly expanding Internet services market drove the development of creative combinations of public and private ISP interconnection. Malecki’s “The Economic Geography of the Internet’s Infrastructure” (Sources and References). for example. it was common for Internet users in Taiwan. This imbalance arose both from the early absence of an exchange infrastructure in other parts of the world. Until relatively recently. in today’s Internet.S. which was connected to the ARPAnet much earlier than any other non-North American country. see.ISP Peering and Interconnection Page 11 growing number of ISPs.3. and from the much more favorable (largely unregulated) economics of Internet telecommunications in North America than in most other countries. with the Asian network operators paying the full cost of the trans-Pacific links. LLC. the interconnection arrangements between North American ISPs and networks in other countries initially were biased strongly in favor of the North American ISPs. A corollary to many of these studies is the observation that the selfhealing properties of the Internet architecture guarantee that the Internet as a whole will remain fully interconnected even if most of the direct connections between individual ISPs were removed.6 Internet Exchange Points outside of North America Because the Internet developed earlier. ensured that the Internet as a whole would always be fully interconnected. Copyright © 2005 Interisle Consulting Group.12 2. could be an order of magnitude lower than the cost of a direct connection . to communicate with other Internet users in Japan or Singapore over a path that led through an exchange point in California (MAE-West). whether or not any particular pair of ISPs installed an explicit public or private interconnection. completely unfounded.

special-purpose and generalist. they had very little incentive to defray the cost of connections to other countries.peeringdb. particularly “quality of service” (QoS) dependent local and global. that semantically span multiple ISPs. ranging from individual home users’ dial-up connections to globe-spanning networks of massive capacity. the pressure to regulate international ISP interconnection in favor of non-North American ISPs has substantially evaporated. 2) the provision of services. from a technical. 14 A current list of Internet exchange points is maintained at https://www. 3 Interconnection in Today’s Internet The fabric of today’s Internet is stitched together from a huge variety of links and individual networks.interisle. Interconnection is goverened by a wide variety of bilateral and multi-party arrangements. 60 of the 92 listed exchanges are located outside of North America. ISP interconnection. 3) detection of and response to denial of service attacks (and possibly other forms of distributed. financial.ISP Peering and Interconnection Page 12 Internet content. As recently as five years ago. at the time of this report. owned and operated by a literally uncountable array of providers: private and public. All Rights Reserved www. Market forces now drive ISP interconnection decisions in many other countries as effectively as they do in North America. LLC. as dozens of viable regional Internet exchanges have emerged outside of North America14. ISPs in non-North American countries were determined to correct this imbalance by forcing North American ISPs to subsidize the cost of inter-regional links. large and small. multi-ISP attack that have yet to be seen). involves a number of issues that go beyond simply splicing together traffic streams. However. . Copyright © 2005 Interisle Consulting Group.php. administrative. and legal perspective. all of which require cooperation and collaboration among multiple ISPs: 1) secure exchange of interdomain routing information.

frame relay).g. and governance policies and practices that encourage high-quality engineering. phishing. other business models (e. other architectures (e.). point-to-point leased circuits.25..1 Interconnection Architecture 3. broad interoperability.1. for example. x.. the centralized and heavily-managed PSTN circuit switching—and in the policies and economics that govern interconnection arrangements. architectural. time and again. ISP interconnection operates very differently in the Internet than its counterpart does. end-to-end ownership of the transport infrastructure by a single provider). it is that the current approach relies on underlying processes that are flexible. The Internet approach is driven by self-organizing. their ability to create and maintain technical.g. emergency warning (cf. monolithic. and compelling. 3. SNA). What has given vitality to the Internet approach isn’t simply that the current approach meets the needs of the current environment. and continued Copyright © 2005 Interisle Consulting Group.ISP Peering and Interconnection Page 13 4) control of spam. The differences are observable both in the basic architecture of interconnection—the decentralized and self-organizing “Internet approach” to packet switching vs. All Rights Reserved www. business. LLC. and other intrinsically multi-ISP exploits.g. in the more familiar public switched telephone network (PSTN).interisle. self-regulating groups that have proved. and 5) enforcement of national public policy mandates (universal service. etc. adaptive. the recent IETF proposal). The Internet approach has displaced: • • • other technologies (e. and • other forms of governance ( .g. wiretap.1 The Internet Approach What can loosely be termed “the Internet approach” has become the dominant paradigm in networking. regulated monopolies or governmentowned PTTs).

Almost every aspect of Internet technical development.interisle. 3. coordinated by the Internet Architecture Board (IAB) and housed. and governance is managed by a self-organized. no members. (see Sources and References). self-regulating structure. members of the former NFSNET “Regional-techs” meeting formed an expanded group. The IETF is: “…a loosely self-organized group of people who contribute to the engineering and evolution of Internet technologies. Copyright © 2005 Interisle Consulting Group. called the “North American Network Operators Group” (NANOG). administratively. but is not a corporation and has no board of directors. 3. operations. over a 20 year history. LLC.ISP Peering and Interconnection Page 14 creation of value. while truly representing global consensus and thereby keeping participants on board. within the Internet Society. and this fact has often been cited as the key to the Internet’s phenomenal success. In the 1990s. Selfregulation has allowed the Internet to adapt quickly and efficiently to the rapid pace of change and innovation in telecommunications technology. the operators of interconnected networks have met both informally and formally to share technical information and coordinate operating principles and practices. and no dues. and public policy. to be effective at establishing workable standards and highly adaptive to the rapid growth and change that have occurred within the Internet.1 Technical Standards Internet technical standards are developed through the activities of the Internet Engineering Task Force (IETF).1.1. with a charter to promote and coordinate the interconnection of networks within North America 15 Tao of the IETF—A Novice's Guide to the Internet Engineering Task Force.1.2 Operating Principles and Practices Since the earliest days of the Internet.”15 The “loosely self-organized” IETF and related organizations have proven. It is the principal body engaged in the development of new Internet standard specifications. All Rights Reserved .1. operation. The IETF is unusual in that it exists as a collection of happenings.

1. LLC. testifies to the success of the self-regulating NANOG model. NANOG has been highly effective in allowing ISPs and backbone providers to coordinate their activities to efficiently provide seamless service to a broad market. Another measure of the effectiveness of NANOG is that other regions of the world have replicated the approach and have developed or are developing similar . and virtual resources. serving as an operational forum for the coordination and dissemination of technical information related to backbone and enterprise networking technologies and operational practices. regardless of the ISP to which they happen to be locally connected. Domain names combine aspects of traditional intellectual property (i. trademarks and service marks). In the Internet. The fact that North American Internet users enjoy transparent access to the entire Internet.3 Resource Allocation One of the most important governance functions in any domain is promoting an efficient exchange of value and allocation of resources. constitute one highly visible class of valuable virtual resource in the”.e. there are two key types of resources in play: Physical.1. or “lightbulbs.interisle. tangible infrastructure such as communications links and switching facilities. with the technical infrastructure required to cause the names to perform their intended function. such as “coca-cola.ISP Peering and Interconnection Page 15 and to other continents. Domain”. Copyright © 2005 Interisle Consulting Group. All Rights Reserved www. including: • • • • • • • AfNOG—the African Network Operators Group SwiNOG—the Swiss Network Operators Group JANOG—the JApan Network Operators Group FRnOG—the FRench Network Operators Group NZNOG—the New Zealand Network Operators Group SANOG—the South Asian Network Operators Group PACNOG—the Pacific Network Operators Group 3.

consensus-based processes. an essential function for the proper operation of most Internet services. there are only a fixed number of addresses . an Internet exchange point is a physical place (typically a room in a building) in which Internet routers Copyright © 2005 Interisle Consulting Group.interisle.1.ISP Peering and Interconnection Page 16 Another important virtual resource is the IP Address. but there still needs to be a mechanism for allocating the addresses. ICANN is dedicated to preserving the operational stability of the Internet. the operators groups can establish a plan for deploying it. is an international.2 Interconnection Arrangements From a purely technical standpoint—that is. Under any addressing scheme. the numerical address by which each computer connected to the Internet is uniquely addressable. ICANN. the Internet Corporation for Assigned Names and Numbers.” 3. In its simplest form. marketdriven process • • The allocation of IP addresses The operation of the mechanism (also highly decentralized) whereby names are resolved to addresses. the IETF can establish an addressing scheme (and has done so). unencumbered by policy or economics—ISP interconnection is no more complicated (or controversial) than simple internetworking. to achieving broad representation of global Internet communities. LLC. From its own description: “As a private-public partnership. through a highly decentralized. in which routers connected by communication links of various kinds compute routes through the Internet based on information they have received from hosts (end users) on any networks to which they are directly connected and from other routers. broadly participatory organization responsible for overseeing: • The allocation of domain names. to promoting competition. and to developing policy appropriate to its mission through bottom-up. All Rights Reserved www.

The most important difference between this model of Internet interconnection and the circuit-switching model of the PSTN is that the Internet dynamically selforganizes to find paths from one point to another without explicit preconfiguration or setup. for example. LLC. or to a direct connection to another ISP.interisle. using routing protocols such as the Border Gateway Protocol (BGP). that a group of Internet users who are customers of ISP B can be reached through an exchange point to which both A and B are connected. All Rights Reserved www. and connect them to the exchange point routers. and then over B’s network. Traffic from users on A’s network to users on B’s network would flow over A’s network as far as the exchange point. Copyright © 2005 Interisle Consulting Group. there 16 In practice. When multiple carriers are involved. In the Internet. it can quickly re-route traffic through some other exchange point. but this is not the classic “holdup” scenario that can arise from simple refusal to interconnect in the PSTN world. In today’s richly-interconnected Internet. without loss of data or manual re-configuration.16 A similar arrangement obtains when two ISPs decide to connect their networks directly to each other. the way in which traffic flows are managed at exchange points is much more complicated than in this example. this process is much less dynamic (and much less robust) in the PSTN. 17 Some ISPs will refuse to carry traffic that originated with another ISP that has been “blacklisted” for sponsoring spam or phishing attacks. where call re-routing depends on the prior negotiation and provisioning not only of alternative circuits but also of switch ports and switching fabric capacity. if an ISP’s link to one exchange point (or the exchange point itself) fails. ISPs that want to use the exchange point to connect to other ISPs run one or more links from their own routers to the exchange point. the possibility that an ISP could find itself unable to connect its customers to some part of the Internet because one or even many other ISPs refused to interconnect with it17 is vanishingly small. ISP A might . The ISP routers and the exchange point routers exchange information about where different groups of Internet hosts—identified by their IP addresses—are located. of course. and decide to use the exchange point to reach those users. rather than at a third-party exchange point.ISP Peering and Interconnection Page 17 are installed.

All Rights Reserved www. Copyright © 2005 Interisle Consulting Group.1 Interconnection Agreements At its most basic. regulations. Peering and Interconnection Page 18 are simply too many available connection points. and small networks’ peering policies are the MCI UUNet policy (at <http://global. an interconnection agreement says “You carry some traffic for me. Aside from the publicly available policies providing a useful look into the economics of peering.php>). or (third example).interisle. 3. 3. increasingly the market has become one in which networks publish their policies openly18. While it was once the case that networks were quite private about their peering policies. or pay you. the Speakeasy policy (at <http://www. or some combination of the two.” Interconnection agreements are often tailored very carefully and minutely to the specific circumstances of the parties involved. and the architecture of the Internet ensures that traffic will flow end-to-end regardless of where an ISP is .>). and (b) external mandates arising from laws.speakeasy. Interconnection economics refers to the way in which interconnecting ISPs assess and manipulate the economic variables that determine the viability of interconnection as a business proposition. particularly when those parties are large ISPs. and other public policy instruments that apply to the jurisdiction in which the interconnection takes place. public and private. the fact that they have become increasingly public speaks to an increasingly transparent. participatory market. in return for which I’ll do something—either carry traffic for you.2 Interconnection Policy and Economics Interconnection policy refers to the way in which the technical and contractual arrangements that ISPs negotiate with each other to interconnect directly or at public or private peering points (Internet exchanges) are influenced by (a) the business objectives and policies of each of the parties. 18 Representative examples of large.

the net settlement amount would be zero) 2) Sender Keep All.interisle. possibly through a thirdparty exchange point or other intermediary. But no charge is made. 3) Transit. Copyright © 2005 Interisle Consulting Group. the provider. One operator. a (usually commercial) facility carrying connections from multiple operators. When all the different network interconnection arrangements are considered. 4) Multilateral exchanges. local. Two operators interconnect. and/or for the customers of other networks to which it is in turn connected (transit). the operator settles through the exchange for traffic that others carry on its behalf and that it carries on behalf of others. traffic is routed to other operators’ networks via equipment provided by the exchange and according to rules administered by the exchange. Each accepts traffic destined for its own customers and originating within the other’s network. it is possible to consider them all as variations on a common theme (see Table 1) : • Networks “A” and “B” connect to each other. • Each accepts traffic destined for its own customers (peering). An operator connects to an exchange. for delivery to the accepting network’s customers. Neither network delivers traffic to third parties on behalf of the other. All Rights Reserved www. destined not only for its own customers but for third party networks with whom the provider in turn connects. LLC. Each charges for the volume of traffic it accepts from the . public and private—connect to each others’ networks under a variety of arrangements. which adhere to one of four basic models: 1) Bilateral settlements. There. As with bilateral settlements. and global. national. accepts traffic originating within the other’s network.ISP Peering and Interconnection Page 19 The current environment is one in which a heterogeneous mix of network providers—large and small. The provider charges a fee for carrying the other network’s traffic. two operators each accept traffic from the other. ( It follows that if the value of traffic in both directions is equal.

ISP Peering and Interconnection Page 20 • The arrangement either includes a cash payment made by one network to the other (again. publicly-advertised factors include: • Geographic coverage of the two networks: either overlapping. and in the case of a paid arrangement (bilateral settlement or transit).interisle. or preferentially choose interconnection partners where the peering relationship gives access to a desired technology. 19 Two recent studies of peering economics are reported in Economics of Peering and A Business Case for Peering in 2004 (see Sources and References). possibly through a third party intermediary). LLC. • Technical factors: networks may require certain technical standards. or it is a multi-party agreement. or it doesn’t. Copyright © 2005 Interisle Consulting Group.2. All Rights Reserved www. • The arrangement is either purely bilateral. the pricing19 . such that a peering relationship would be symmetrical. “A” accepts traffic for: Its own customers only Other networks to whom it connects “B” accepts traffic for: Its own customers only Other networks to whom it connects Other Financial settlement None Cash Through an Exchange Multi-Party Networks connect: Directly Nature of Agreement Bilateral Table 1: Any given interconnection arrangement can be characterized by choosing one value from each of the columns above. or non-overlapping.2 Micro-economics of Interconnection Many economic and business-policy factors affect an individual ISP’s decision to peer or not to peer with another ISP. 3. such that a peering relationship would extend each network’s geographic reach.

the arrangement is made on the basis of a perceived equitable exchange of value between the two interconnecting parties. if one network’s specific geography or customer mix or traffic mix dovetails with an important element of the other network’s strategy. Two arguments against intervention apply here: one addresses the argument itself and the other examines historical outcomes. it is extremely difficult to analyze the economics of any particular interconnection arrangement using external. All Rights Reserved www. LLC. European ISPs in one country were connecting to US backbones in order to send traffic back to a neighboring European country. At a theoretical level.interisle. some obvious (direct cash payment. In any given case. In some cases. Anticipated traffic volumes. Because so many idiosyncratic factors affect each interconnection decision. Routing: networks may require specific routing policies and practices. bearing the cost in effect of two transatlantic hops. it would lead to a higher perceived value and price than otherwise. others entirely idiosyncratic . cost-effective transit. For example. or access to a large user community. the implicit assumption that the cost of a link. The argument has been made in the past. Additional. that certain bilateral relationships between overseas and US-based networks are “unfair” on the grounds that the cost of the transatlantic or transpacific link was borne entirely by the overseas network. where the value of the arrangement to each of the parties is determined by a number of factors. in a perfectly fair market. where as the origination of traffic was split more evenly between the two. idiosyncratic factors . objective criteria in order to determine whether or not the market is distorted and the agreement gives either party undue advantage. for example).ISP Peering and Interconnection Page 21 • • • • Operational: networks may require a certain level of operational support. should be borne by the two connected parties in proportion to the volume of traffic they Copyright © 2005 Interisle Consulting Group. for example. Size: networks may choose to peer only with similarly sized networks.

that influence the value of interconnection to either party. at risk of cutting its customers off from regions of the Internet) In addition to the intrinsic choice. does not mean that X’s customers will be unable to reach Y’s customers: X always has the option of buying transit from some third party who is in turn connected to . it has been observed that the European networks now connect to each other at multiple exchange points within Europe. On a more pragmatic level. (Y has a strong incentive not to make the terms of interconnection too onerous for at least some well-connected peers. 3. and that anything else is perforce distored. including “Internet interconnection and the off-netcost pricing principle”: “The purpose of this article is to develop a framework for modeling the competition among interconnected Internet “backbone operators” or “networks. that led to the emergence of this more effective network topology. as contrasted with the circuit-switched. and not regulatory intervention. it is worth examining the overall characteristics of the market in which these arrangements happen. An essential characterization of a market is its liquidity. Models of interconnection economics have been developed by <<citations. choice is intrinsic to the Internet’s routed.“>> Copyright © 2005 Interisle Consulting Group. All Rights Reserved www. It was the rational. financial desire to avoid paying transatlantic round-trips to connect to one’s neighbor. is flawed due to the additional factors other than traffic volume. LLC. connection-oriented public telephone networks.2.ISP Peering and Interconnection Page 22 originate. Does a buyer or a seller have a choice of many parties to deal with? Or is there a monopoly or oligopoly limiting choice? In some sense. connectionless architecture. Just because ISP “X” can’t strike a satisfactory bargain with ISP “Y”. the overall economic environment in which interconnection agreements are negotiated can be characterized as a free market with a large number of players. discussed above.3 Macro-Economics of Interconnection In addition to examining the factors influencing a single interconnection arrangement.interisle.

Session announcement. in fact. Given the idiosyncratic nature of peering decisions. who would be able to form in effect a cartel and disadvantage their competitors. The presentation will be technical and geared toward an engineering . and damage to the end consumer.ISP Peering and Interconnection Page 23 It has been suggested that the free market operation of ISP interconnection would be threatened by consolidation and the emergence of a small number of dominant players. Recently.interisle. All Rights Reserved www. resulting in the usual effects of reduced competition: higher prices overall. been considerable consolidation in the ISP market. There has. it has been claimed that the barriers to entry in the backbone business have been lowered. uncompetitive. peering. tracking the number of backbone operators and the entry barriers to the backbone business is likely to provide insight into the dynamics of the market. This presentation will review pricing trends and the opportunities that are being created for small and regional networks. Equinix. On the other hand. it is not clear that just because the cash economics of given a peering arrangement do not track the data transport volumes. Is it hurting the market? In assessing this question. 2005 ISPCON conference. LLC. or other obvious criteria. It will draw upon specific examples and case studies of ISPs that have leveraged this trend. network performance and business expansion. or signatures of a distorted. for example: “Trends in transport pricing over the past six months have created a disruptive change by lowering the barriers for small and regional networks to develop robust national backbones for application delivery. founder and CTO. fewer choices. geographic footprints. 20 Jay Adelson. a slower pace of innovation.”20 It is worth following these predictions to determine their accuracy and applicability. Copyright © 2005 Interisle Consulting Group. it is important to understand what might be the symptoms. as well as a review of specific products and their price points. implies market distortion. oligopolistic or monopolistic market.

This was the focus of NRIC V Focus Group 4. dealt with ISP interconnection at the level of packet exchange—how IP packets are conveyed across the boundary (physical and administrative) between different ISPs. are in many senses orthogonal to the operation of the Internet itself. and represent a significant and potentially distorting force. The fourth. voice is just another application.1 Multi-Layer Interconnection Arrangements Today: interoperability and interconnection at the packet level (architecture—the Internet hourglass model). which will force it to . and at the IP layer a VoIP packet is indistinguishable from any other data packet. All Rights Reserved www. and the architecture of the PSTN is highly application-sensitive. LLC. This comes about in part because the PSTN. 4. The first three challenges described below are well within the scope of the “Internet approach”: the existing policy mechanisms are well equipped to adapt to these changes. the final report of NRIC VI Focus Group 3 dealt with VoIP: “The recommendations and best practices included in this report address the interoperability of Voice over Internet Protocol (VoIP) and the Public Switched Telephone Network (PSTN).interisle. as they have to equally disruptive challenges and changes in the past. does not observe the same functional layering as do IP networks. In the PSTN. attention has been focused on interoperability at the application layer—VoIP in particular. which has traditionally been the vehicle for global voice telecommunications. interoperability between the Internet and the PSTN is freighted with serious difficulties. relating to external attempts to bypass the selforganizing aspects of the Internet approach and impose poicy. In November 2003. More recently. In the Internet. for example. Because the architecture of the Internet is application-insensitive.ISP Peering and Interconnection Page 24 4 New Challenges The Internet approach to interconnection faces several new challenges. voice is both the application and the driver for the architecture of every other part of the system. as it has to other challenges and changes over the past decades. In 2000 the final report of NRIC V Focus Group 4 (see Sources and References).” Copyright © 2005 Interisle Consulting Group.

LLC. universal standard of coverage. inclusive organizations. or controlling trans-border data flows). 4. Possible emergence of a traffic-sensitive settlement system as ISPs in different situations try to deal economically with the asymmetry inherent in WWW. operating practices and policies. As the Internet becomes more of a core enabler of human activities. it may start to look like a tool for the achievement of public policy objectives (for example.   In every arena: technical standards. the terms of interconnection agreements.3 Traffic-Load Sensitive Peering Agreements Today: peering agreements are almost uniformly traffic-load insensitive. addressing the “Digital Divide” at a national or global level. interconnection arrangements are likely to involve multiple layers of the Internet architecture. and representing a broad constituency. the economic decisions surrounding a provider’s decision to interconnect. operating with a high degree of transparency. national governments). which concluded at the time that balkanization was not likely to occur because of other forces. and others. policy is established by self-organized.ISP Peering and Interconnection Page 25 With the rise of VoIP and QoS-dependent applications. operating practices. 26).4 Government Intervention Government attempts to control various aspects of the Internet (ITU. 4.2 Balkanization Potential for balkanization of the Internet as backbone ISPs try to differentiate themselves (competitively) by offering services only to their own customers. 4. Copyright © 2005 Interisle Consulting Group. This will affect technical standards. All Rights Reserved www. resulting in a network infrastructure that does not provide a uniform. and the overall market. 5 Conclusions Today's Internet is the way it is because of the way it . resource allocation. This was anticipated by studies conducted in the late 1990s.interisle. (see OPP WP 32 pg.

self-regulating aspects of the Internet are thriving.interisle. 33. which creates a strong bias toward policies that facilitate growth and efficiency.fcc. are contrary to the fundamental. and the policy makers would lose their mandate. At present. top-down attempts to regulate.ISP Peering and Interconnection Page 26 This approach is nearly inevitable. All Rights Reserved www. July 1999. Jason Oxman. Jay On the other hand.pdf Bill and Keep at the Central Office As the Efficient Interconnection Regime. the participants wouldn't follow. either in the service of "improving" the Internet itself. 32.pdf A Competitively Neutral Approach to Network Interconnection. September 2000. continued growth of the Internet is a rising tide that lifts all boats. FCC Office of Plans and Policy Working Paper No. Patrick DeGraba. Barnekov. If the policy making organizations didn't respond to that imperative. the self-organized. or in furtherance of orthogonal policy objectives  (solving the “digital divide” problem. Regulatory policy-makers should remain attuned to the possibility that future developments would lead to a less competitive environment. FCC Office of Plans and Policy Working Paper No. December 2000.fcc. and watch for the signatures of a distorted market. global market in which the Internet operates. but until such problems present themselves. 6 Sources and References The FCC and the Unregulation of the Internet.pdf The Digital Handshake: Connecting Internet . December 2000. http://www. to redress perceived inequalities in access or pricing.fcc. FCC Office of Plans and Policy Working Paper No.pdf Copyright © 2005 Interisle Consulting LLC. decentralized nature of the Internet. given the inherently decentralized native architecture of the Internet and the heterogeneous. 34.  and run the risk of being destabilizing and harmful. FCC Office of Plans and Policy Working Paper No. no matter how well intentioned or carefully crafted. Michael Kende. which is an important source of the Internet's vitality. http://www. http://www. 31. should refrain from action. The incentives are well aligned:  due to the network effect.fcc. Atkinson and Christopher C. for example).gov/Bureaus/OPP/working_papers/oppwp34. .nric. 2000. Presentation at the 1999 Internet Society Conference (INET 99). <http://www.stanford. All Rights Reserved www. Marshall Friemer. September 2000. and Jean Tirole. <http://www.> The Art of Peering—The Peering Playbook. <http://www. Geoff Huston. <http://vjolt. Paul Milgrom. Fall September 2004. < Interconnection. < http://www.” New York City. Jean-Jacques Laffont.ppt> Competitive Effects of Internet Peering Policies. Rob Frieden. May 2002. NRIC V Focus Group 4 Final Report. November 2003. <http://www.htm > Without Public Peer: The Potential Regulatory and Universal Service Consequences of Internet Balkanization.interisle.ISP Peering and Interconnection Page 27 Evolution of Internet Infrastructure in the Twenty-First Century: The Role of Private Interconnection Agreements. Norton. Steve Gibbard.pdf> Economic Trends in Internet Exchanges. and Padmanabhan Srinagesh. 34.xchangepoint. Reprinted from The Internet Upheaval. Internet interconnection and the off-net-cost pricing principle. Bill Woodcock.pdf> The ISP Survival Guide: Strategies for Running a Competitive ISP. <https://ecc. Wiley Computer Publishing. Appendix B: Service Provider Interconnection for Internet Protocol Best Effort Service.pch.pdf> Copyright © 2005 Interisle Consulting Group. University of Rochester. Cambridge: MIT Press (2000): 175-195. Virginia Journal of Law and Technology. 3 February 2005. FCC Network Reliability and Interoperability Council. Presentation to NZNOG 2005 conference. <http://www. June 1999. Ingo Vogelsang and Benjamin Compaine (eds). 370–390.pdf> A Business Case for Peering in 2004. Presentation to “Gigabit Peering Forum IX. April 2005. Internet Peering Ecosystem. William B.doc> NRIC VI Focus Group 3 Final Report.isoc. Geoff Huston. William B.pdf> Economics of> The Evolution of the U.nric. Bridger Mitchell. Patrick Rey. Norton. and Pavan Gundepudi. FCC Network Reliability and Interoperability Council. 2. 14 September 2004. Business Case for Peering in February 2005. November 2003. William B.pch. October 1999. Summer 2003 pp. RAND Journal of Economics Vol. Peering and Financial Settlements in the Internet.equinix. 1998. No. < Scott Marcus. Rajiv Dewan.

tmdenton.ISP Peering and Interconnection Page 28 Internet Economics.). Susan Harris and Paul Hoffman.> The Economic Geography of the Internet’s Infrastructure. October Netheads vs. <http://www. LLC. 1997. Bailey (eds. < http://www. Bellheads: Research into Emerging Policy Issues in the Development and Deployment of Internet . MIT Press. <http://edu. All Rights Reserved www. McKnight and Joseph P.html> Copyright © 2005 Interisle Consulting Lee W. Edward J.interisle.pdf> Tao of the IETF—A Novice's Guide to the Internet Engineering Task Force.clarku.ietf. May 1999. Timothy Denton. October 2004.

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